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Revenge of the Safe Havens: Day of Reckoning Will Come, Says Cuggino

By all accounts, it has been a tough year for the dollar, a really bad year for bonds, and a complete wipe out for gold. As Michael Cuggino, president and portfolio manager at the Permanent Portfolio family of funds sums it up, "investing in anything other than stocks hasn't worked this year."

At least not yet. While hints of a possible end to the two-week impasse in Washington have momentarily restored investor appetite for stocks, the shunning of safe havens won't last forever.

"It's been a very good year for equities, a year where stocks have outperformed corporate earnings and economic performance," Cuggino says. "That alone is a risk factor for stocks."

This is not the mindset of a doom-and-gloomer who has turned his back on the stock market. On the contrary, it is more a call for balance and diversification in the face of an all-or-none environment.

"We would advocate a diversified approach," he says, "combining safe haven assets, like precious metals, short-term government bonds, and high grade corporate (debt), with more aggressive growth vehicles like equities, for a more balanced overall return."

In fact, of all the so-called safe havens, this San Francisco-based money manager sees the most value in gold right now, as it is slumping to levels not seen since July.

"People say (gold) is no longer relevant, there's no inflation, there's no need for it," he states. "But I would argue the other way. I think that this environment is tailor-made for a long term investment in gold."

So while investors seem eager for a reason to rush back into equities and push benchmark indexes beyond the record highs set last month, Cuggino is spreading his bets in other places. Not only does he think the current feuding in Congress is merely a preamble for the mid-term elections of 2014, he also wants to make sure to have some protection from the effects of the Fed pumping trillions of dollars into the system.

"I do believe in the long-term that all this liquidity is going to have to be mopped up," he says, "and I think that is going to produce this day of reckoning."